New Holiday Pay Ruling To Add Pressure On UK Businesses

Businesses across the UK could now be forced into including non-contractual overtime which an employee chooses to work voluntarily in their holiday pay calculations.

The prediction from national law firm, Irwin Mitchell, follows an initial Employment Tribunal decision this week relating to Dudley Metropolitan Borough Council and 56 tradesmen who performed maintenance for the organisation’s social housing stock.

The employees were invited to do work on a Saturday on a purely voluntary basis and they also elected to go on standby every four weeks to deal with emergency call-outs and repairs.

The presiding judge ruled that this voluntary overtime, voluntary standby and voluntary call-out payments should be considered ‘normal pay’ when undertaken on a regular basis. As a result, these additional hours worked should be reflected when calculating their holiday pay for the first 20 days of annual leave.

The decision, one of the first in England and Wales to allow voluntary overtime to be included in someone’s holiday pay, adds confusion for businesses in relation to the complex issue of holiday pay calculations. So far, there are no appeal decisions on this issue that are binding in England and Wales.

Employment lawyers at Irwin Mitchell also say that Tribunals are now starting to move cases about holiday pay disputes forward, despite many having previously been put on hold awaiting the outcome of the landmark Lock v British Gas case (which is being appealed to the Court of Appeal). British Gas are seeking to argue that it is not possible to read words into the Working Time Regulations which enable overtime and/or commission payments to be included within the definition of ‘normal pay’ and counted when working out holiday pay.

Expert Opinion

“This latest ruling is significant and potentially very costly for businesses and gives a very real steer on the fact that Tribunals are becoming less concerned with the ‘label’ attached to the overtime arrangement. Instead, if overtime is worked regularly, then it is likely to be counted.

“We still don’t know how often overtime has to be worked to be considered ‘regular’ and more guidance is needed to help businesses decide whether or not to include these payments.

“This case suggests that the Tribunals in England and Wales are changing tack. Many cases were stayed pending the outcome of Lock v British Gas in the Employment Appeal Tribunal. However, there does not appear to be an appetite to continue to adopt the same approach despite the continuing uncertainly posed by the on-going appeal in that case."

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